The privatization opportunities that receive a high ranking are generally selected to proceed with the preparation of implementation plans. Implementation plans outline the specific steps required to complete the transaction, and typically include:
Detailed Financial Analyses and Valuation(s);
Specific Responsibilities of Each Party;
An Evaluation of Private-Sector Proposals;
Negotiation with the Selected Private-Sector Team; and
Preparation of the Required Public/Private Partnership Agreement(s).
Prior to distributing any solicitation, governments need to analyze privatization opportunities from the perspective of the particular private industries required to successfully implement each project. In other words, a government needs to know the answer before they ask the private sector the question.
Loss of control is perceived as one of the foremost implementation problems with privatization. It is also one of the easiest to resolve. Governments can use four methods to deal with this important issue.
METHOD 1: Identify Government Control as a Critically Important Criterion in the Privatization Process. If a government wants to maintain a certain level of control over selected facilities, operations or services, this factor should be weighted heavily when establishing the criteria to qualify and evaluate the privatization opportunities.
METHOD 2: State the Desired Level of Control in the RFP. Government officials should also indicate in the RFP the extent and nature of the control they wish to retain over contracted service provision.
METHOD 3: Document Performance Standards. If the required level of control by the government is marketable and negotiations begin with the selected private company(s), the government needs to develop specific "performance standards" to which the private company(s) will be held in the evaluation of their work.
Performance standards address issues such as:
Quality of Service;
Timeliness of Service and Repairs;
Actual Versus Expected Savings; and
Availability/Access to Government.
A potential problem with developing performance standards is to specify performance requirements that are so specific that they obviate the entire purpose of contracting out. By over-specifying, governments can also kill the interest of private companies in participating in privatization projects or public/private partnerships.
METHOD 4: Additional Control Mechanisms for Governments. Governments should develop and document performance standards and other requirements as if there will be a problem or dispute in the future with the private company selected for each privatization. Governments can specify a rate schedule to cover the cost of government intervention, if the private company fails to perform to the documented standards.
METHOD 5: Performance Bonds. Governments can also demand bid bonds and performance bonds. The objective of the bid bond is to create an incentive for private companies to "close" an agreement. In other words, if the "shortlisted," or selected private company(s) declines the award, it must forfeit the amount of the bid bond. The performance bond goes into action when private companies default in some manner during the term of the contract. Governments should be careful not to set the size of the performance bond too high, because it inhibits the participation of small companies, and could serve as a catalyst for higher consumer costs. The size of the bond should be determined in advance to cover only the cost incurred by government to correct the situation or structure a contract with another company.
METHOD 6: Monitoring Techniques. In order for governments to detect a less-than adequate performance by a private contractor, they will need to establish a system of monitoring and maintaining accurate records. Governments can use a variety of methods to monitor the performance of a contractor. These methods include:
Scheduled On-site Inspections;
Surprise On-site Inspections;
Complaint Monitoring; and
Periodic Cost Comparisons.
Unless governments retain at least oversight control, and manage the privatization contract, there will always be the danger of losing the advantages of competition, or having a private monopoly evolve.